The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

Total

Dirt

Bikes

Mountain Bikes

Racing

Bikes

Sales

$

928,000

$

267,000

$

403,000

$

258,000

Variable manufacturing and selling expenses

475,000

111,000

206,000

158,000

Contribution margin

453,000

156,000

197,000

100,000

Fixed expenses:

Advertising, traceable

69,200

8,600

40,300

20,300

Depreciation of special equipment

43,500

20,400

7,500

15,600

Salaries of product-line managers

115,100

40,100

38,800

36,200

Allocated common fixed expenses*

185,600

53,400

80,600

51,600

Total fixed expenses

413,400

122,500

167,200

123,700

Net operating income (loss)

$

39,600

$

33,500

$

29,800

$

(23,700)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

2. Should the production and sale of racing bikes be discontinued?

3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.